The Military Home Programs' Blog

You've heard a lot over the last several months about historically low home loan rates...but lately, you've probably been hearing the buzz that interest rates may be heading up in the near future, due in part to the Fed ending their purchases of Mortgage Backed Securities.

All of this begs the question: How and why do rates move...and what is happening right now?

The answer involves a number of factors and can seem complex. But it doesn't have to be!

To help you understand how interest rates move, take a look at this easy to understand video. You'll learn what the Fed has been doing to keep rates low, as well as the connection between interest rates and Mortgage Backed Securities.

Take a look at the following video now for an easy explanation:

How Rates Move - and What it Means Right Now

"IT AIN'T OVER TIL IT'S OVER." Yogi Berra. And whether you find those words deeply wise or simply puzzling...The Fed has told us repeatedly that their massive purchasing program of Mortgage Backed Securities is just about over - and this translates to home loan rates rising in the near future.

As you can see in the chart below, the amounts of Mortgage Backed Securities the Fed is purchasing are slowly dwindling, as the program is set to wrap up by March 31st, and are clearly trying to ration out the remaining portion. Last week, the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about 3 out of every 4 home loans during the past year. When such a large buyer leaves the market, it is very likely that prices will worsen.

This is very important because as the Fed has less money to last through the remaining months of the program, their ability to keep home loan rates low via their purchasing power will wane. And those who can take advantage of currently low home loan rates do not wait, as the clock on these historically low rates is ticking.

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Chart: The Fed's Purchase of MBS (By Month)

Also last week, Fed Chairman Ben Bernanke provided a speech on a number of topics, perhaps the most important of these being switching the Fed's benchmark from the commonly watched and monitored Fed Funds Rate, to a new benchmark of "interest paid on excess reserves". Banks are required to keep money on reserve with the Fed and may, from time to time, have an excess in those reserves, which the Fed can pay interest on. Since the Fed Funds Rate is only a "target rate", banks can still lend money to other bank overnight at their own negotiated rate. Sometimes near the end of the trading day, banks have been lending their excess reserves out overnight for a rate that differs from the Fed Funds Rate, but is higher than interest on those reserves from The Fed.  This undermines the Fed's ability to set a reliable benchmark. 

The Fed wants to fix this by using the amount of interest they pay as the new benchmark, since the Fed has total control of this rate, which should be right at or just under the Fed Funds Rate. 

There is one major take-away from this discussion - it appears that the Fed is getting their ducks in a row as they prepare to push interest rates higher. And when they do increase rates, the Fed does not want any obstacles that may undermine their plan.

VA Limits Drop in 2010

San Diego’s new zero down limit for VA loans is $437,500. That’s a major drop from the 2009 limit of $593,750. This new amount is for any loan closed on or after January 1^st with no grandfathering for purchases started prior to January 1^st.

                                       2009               2010

San Diego County        $593,750         $437,500

Riverside County          $417,000         $417,000

Imperial County            $417,000         $417,000

Orange County             $737,500         $593,750

View All 2010 Loan amounts

These new limits apply to all loans closed January 1, 2010 through December 21, 2010. 

VA JUMBO's are still available to $1.5M

These new limits only change the down payment required

FHA removes their 90 day ‘flip’ rule

Effective Feb 1st

FHA has reversed their earlier ruling that a property had to be owned for more than 90 days before an FHA buyer could purchase. These ‘flip’ properties had been an excellent source of homes for our VA buyers, since they were not under the same restriction. And since over 50% of the offers today are either FHA or VA, that took a lot of competing buyers out of the bidding war.

According to the FHA memo: “To help facilitate the return of repaired and habitable properties to the market in a timely fashion, additional exemptions to the 90-day resale restriction period must be granted for the purchase of properties by investors. This policy change will help to sell properties that may otherwise remain vacant for up to 90 days, while offering affordable housing options to buyers wishing to use FHA-insured financing”

This change takes place effective February 1^st, and remains in effect for 1 year. So VA buyers need to jump on any remaining flip properties in the next week before the FHA buyers are back as competition!

There's a lot of speculation that the Treasury may take steps to massively lower rates on a 30-year mortgage. News headlines are using numbers like 4.5% (which might be a bit optimistic).

If the Treasury meets its goals, VA rates will drop down as well. We saw them drop early in November when the Fed announced it would be buying mortgage-backed securities. That is essentially what the Treasury is now proposing, and it would have a similar effect. Rates probably won't go as low as 4.5%, but a refinance to something like 5.5% (with zero or close to zero cost) is very conceivable.

Per Ken Bates of Military Home Programs, “There is one danger with an opportunity like this. Last time rates dropped significantly they bottomed out for only 36 hours and then reversed higher. Being ready to act is important, especially if everyone floods the system at the same time.”

So how do you ensure you and your family don’t miss out on the lowest interest rate possible? By finding and working with mortgage professionals like those at Military Home Programs who understand your family’s financial goals and can include you in a “Rate Watch” program.

A trusted mortgage advisor is essential in providing you with realistic options, not the 'advertised' numbers you see on the internet or in the piles of junk mail. Always work with a lender who has a Rate Watch program that includes knowing where you stand, what your options are, and most importantly - where you'd like to be. If rates reach that level - even if it's just for a couple hours – you can be locked in and on your way to a lower and more affordable interest rate! To sign up for Military Home Program's Rate Watch Program, email us at: Info@MilitaryHomePrograms.com or call 619-422-5900.  Call Today - It's FREE and will give you that peace of mind you deserve!

Preserving the American Dream for Our Nation's Veterans!

To assist returning soldiers avoid foreclosure, this bill lengthens the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service and also provides returning soldiers with one year relief from increases in mortgage interest rates.  In addition, the Department of Defense is required to establish a counseling program to ensure veterans and active service members can access assistance if facing financial difficulties.  Also included is a provision that increases the VA loan guarantee amount, so that veterans have additional homeownership opportunities.  The bill contains provisions to do the following:  increase benefits paid to veterans with disabilities such as blindness for the purpose of adapting their housing; provide a moving benefit to servicemen and woman who are forced to move out of a rental housing because the owners of the housing was foreclosed on; provide that veterans benefits received in a lump sum are treated the same for the purposes of eligibility for housing assistance as monthly benefits; and to allow the Veterans Administration to provide for improvements and structural alterations to homes of veterans with service-connected disabilities.

If you are shopping for a new home, you may have noticed some advertisements with terms such as “subject to lender approval”, “foreclosure”, or “bank owned”. All of these phrases bring to mind a desperate seller and better yet, a great deal for you! But, like any other good deal in life, there can be a down side. So before you make an offer on one of these properties, make sure you understand exactly what a foreclosure is, the pitfalls when buying one and how to ensure you get the best deal possible.

Distressed Properties Defined

In real estate, the term foreclosure actually refers to the process a bank uses to repossess a property when the current home owner stops making the mortgage payments. There are three opportunities during the foreclosure process to buy the home, each one having its own advantages and disadvantages.

Opportunity #1: The Short Sale – “Subject to Lender Approval”

In the case of a short sale, the existing home owner not only owes more than the home is worth but they are also behind on their mortgage payments. Regardless of the reason for not making their mortgage payments, these home owners have taken a proactive step to try and sell their home. With a sale of the home, the seller is not going to make any money and the price will be set for a lesser amount of money than the bank is owed. Therefore, it is the bank, not the seller that makes the final decision on whether or not to accept incoming offers to purchase the property.

A short sales’ greatest benefit to the buyer is that it has the cooperation of the existing owner. This means the condition of the property is often much better than fully foreclosed properties. Another benefit, if the bank can agree to sell before finishing the foreclosure process, is that it may save significant legal and foreclosure processing fees. This also puts the buyer in the position to get a great deal.

Barbara Blakeley of RE/MAX Associates, a Realtor of 10 years, specializes in helping buyers and sellers of distressed properties. She agrees they are often in good condition and great deals but advises that the biggest problem she encounters is the amount of time they take. Contrary to the name, short sales are the slowest of all the options, sometimes taking so long that the bank ends up foreclosing on the property before they themselves can approve and complete the short sale.

If you are wondering how this can happen, you are not alone. The main cause - banks are simply overwhelmed with short sale offers and cannot handle the volume of offers they receive. Barbara cautions that from a buyer’s perspective, the waiting can be torture. She advises to find an area vs. a home you would like and keep your options open.

According to Ken Bates from Military Home Programs, there are several agents that won’t even make offers on short sales unless the client has no timeline and can wait up to several months for an answer. This is definitely not the ideal solution for most military members that need housing when their PCS orders are executed.

Opportunity #2: The Foreclosure:

The public auction is the least used method to buy a distressed home in the foreclosure process. The reason is simple. Purchases at an auction normally require an all cash deal, a quick closing timeframe, and a property sold in “as is” condition. To make matters worse, the “as is” condition of the property may not meet a bank’s standards to qualify for a loan. This poses a problem as there is often no opportunity to inspect the property and no time to secure a loan.

This option is most commonly used by professional investors with million dollar bank accounts and much expertise in rehabilitating properties.

Opportunity # 3: Bank or Real Estate Owned (REO)

Real Estate Owned (REO) is a fancy term for when the property was acquired by the bank through a foreclosure action. Banks end up owning the property when nobody at the public auction bids enough to cover the amount owed against the property.

According to Barbara, REOs offer a great opportunity because buyers can purchase in neighborhoods they may not have been able to afford under normal circumstances. And, they offer a quick close of escrow.

Of course with these benefits, there are some down sides. The property may be in less than ideal condition. The property may have been intentionally damaged by angry owners who were forced out, it may be vacant and vandalized, or just neglected for some time. Additionally, as the bank was not an “occupant” or resident of the property, it is not obligated to offer any disclosures. Barbara highly encourages her buyers to go the extra mile and not only get a home inspection, but also hire specialists to investigate anything even slightly questionable such as possible mold, roof issues, or termite damage.

Deal or No Deal?

You will find REO and Short Sale properties in many of the same places you’d find any other home for sale. The properties often have real estate agents representing them and will be listed on the regular web sites and Multiple Listing Services (MLS) available in an area. You do not need to go to special sites or pay for any lists. Actually, you might not even realize it’s an REO or short sale property unless you read the fine print or confidential remarks only available to real estate agents.

Do you have to work with an agent to find these properties? No, but unless you’re used to negotiating with banks, working with an expert is your best bet. The banks are currently overwhelmed with offers and require everything to be perfect before they’ll even consider reviewing yours. More importantly, an agent focused on REO’s and short sales will guide you on the best path to protect your interests and help you to avoid the pitfalls.

Conclusion

Foreclosures are some of the best deals on the market, many selling for significantly less than what they sold for just two or three years ago. With rates still very low, it’s an ideal time to jump into the market and take advantage of this unique win-win for buyers. Don’t let buying from the bank discourage you, get the best representation you can and go for it!

Barbara Blakeley is a Realtor working for RE/MAX in San Diego, California. She specializes in representing buyers and sellers with distressed properties. Barbara@bbsdhomes.com

The VA Loan Gets an Overdue Presidential Boost

On July 30, 2008, nearly four months after the March stimulus bill to boost the housing market, the Housing and Economic Recovery Act of 2008 passed, allowing the VA to guaranty loans to an increased loan limit. What does this mean for San Diego County military members? It means that the VA Loan is now available for purchase prices up to $697,500 with a zero down payment! Wow!

The new legislation is exciting because there is a greater chance for veterans to purchase an appropriate first home, whether they are new to military service or retiring. Of course, there are obstacles to be aware of. For one, as the bill is written, the new loan limits will cease to exist on December 31, 2008. Although there is an expectation that the bill will be extended, there is no written guarantee. So now may be the optimal time to buy with higher loan limits and historically low interest rates. To make matters worse, many lenders may not offer the higher VA loan limits with 100% financing. The government has passed the legislation but it is still up to investors and lenders to implement the changes.

As always, it is better to find a lender specializing in VA loans when purchasing or refinancing a home. A VA lending expert will ensure you are getting the most up to date information allowing the greatest use of your VA loan. You and your family deserve the best!

I received the below email from a close relative...  I decided to post it as I have encountered so many problems with customer service recently and quite honestly, it is just so irritating the way we are treated sometimes.  I continue to ask myself, "With the amount of information at our fingertips, is it possible to really get the word out when we are mistreated by large, reputable companies?"  I have no idea but here is what I do know...

All,
Just wanted to start my personal crusade against EXPEDIA.COM.  As some of you may know Amanda and I were supposed to be leaving for Hawaii for a 2 week vacation this morning.  When we got to the airport, we learned that the carrier we were flying went out of business.  After calling Expedia, speaking to 7 different representatives, and being placed on hold for the better part of 8 hours today to ask them why we were not informed and what could be done to correct this. The answer I received was: 'this is not our problem it is your problem'.  When I explained how this was my family's vacation before my 7 deployment to a combat zone, and how the other booking made through Expedia that we discovered was also cancelled, was for my parents to see their grand child and me one last time before deployment, I was told: 'Military people bring this on themselves. It's too bad for all of us that you're in the military'.  Through the extreme disgust, I managed to keep my calm despite wanting to reach through the phone to the different call centers in India that I talked to and finally managed to stay on hold long enough to get a supervisor.  She promised us 2x $200 coupons to be applied at the Expedia website for future bookings, however, after an attempt to salvage our pre-deployment leave by making a booking I learned (after yet again another call to a representative) the supervisor had lied to us.  Bottomline: 2 sets of tickets (one set for us and one set for my parents) bought 5 months out on Expedia, cancelled without notifying us until we were at the airport, lied to by 'customer service', arrogantly insinuated to that it is my fault for being in the military =  very disappointed family, ruined family vacation, missed opportunity to enjoy a vaction together before another deployment overseas.
 
Please help me to pass this on to ensure that other military families don't get screwed over by Expedia.com; use Travelocity.com!
Liam

After three moves in four years, my resume screamed at potential employers, “we move a lot.” I know many of my fellow military spouses have had this same experience, which leads us to looking at alternatives such as starting our own businesses. And all of our businesses have one thing in common – they require accurate bookkeeping, potential business licenses, and liability protection. Yikes!

The downfall is, if you don’t set up your business correctly from the start, you may end up spending a fortune in attorney and accounting fees to fix any mistakes. To keep this from happening, here are some easy tips to follow to ensure you get off to the right start!!

First and foremost, separate your business income and expenses from your personal ones. This will help tremendously when it comes to tax time. If you don’t have fancy letterhead or a huge sum of money to start, that’s okay. Just open a separate checking account to keep track of your business income and expenses. Some banks offer free business checking accounts. Also, designate one of your credit cards specifically for your business expenses and do not use it for anything else. You may also want to meet with a tax preparer to ensure you understand not only what deductions are available to you but also how to keep proper records for these deductions, such as your auto expenses or a home office deduction.

Second, look into any state requirements for a business license or any regulations that you need to be aware of to run your type of business for the state you run your business in.

And finally, make sure you have liability protection. This can be done by something as simple as purchasing insurance or it can become more complicated and expensive by setting up a limited liability company or a corporation. There are small business attorneys who will do a one hour consultation for free to discuss with you if and when you need to take your business to the next level of protection.

Many of us are experts in our fields but running our own businesses is new for us. So follow these simple steps and rest easy knowing you are off to a great start!